Businessweek Archives

...And Even Teen Smokers May Kick The Habit

March 14, 1993

Economic Trends

...AND EVEN TEEN SMOKERS MAY KICK THE HABIT

How much would smoking decline if cigarette prices were raised dramatically? Economists calculate that the cigarette price elasticity of demand is around 0.4, meaning that a 10% price rise induces a 4% drop in demand. Although other factors can mitigate this effect somewhat, experts agree that a big rise in cigarette prices can be expected to lower consumption significantly--in part through reduced smoking, but mostly through people either stopping smoking or never acquiring the habit.

One example of the price impact: After California raised its cigarette tax from 10 superscript 2 to 35 superscript 2 per pack in 1989 and initiated an antismoking advertising drive, consumption in the state fell by 25% from early 1989 through 1991.

Similarly, along with a ban on cigarette advertising, Canada's federal and provincial governments began to boost cigarette taxes heavily in the 1980s, pushing the price of a pack to about $4.45 today (U.S. dollars). As a result, per capita consumption dropped 38% from 1982 to 1992, even though many smokers cross the border into the U.S. to buy cheaper cigarettes. Most encouraging of all, reports Canada's Non-Smokers' Rights Assn., smoking by teenagers has plummeted by 61%.

In the U.S., where cigarette companies have been raising prices aggressively recently, per capita consumption has fallen 27% since 1982. But teen use declined only 14% from 1982 to 1991.

Does that mean U.S. teenagers have somehow become immune to such increases? Not at all, claims Matthew Myers of the Coalition on Smoking or Health. "You've got to remember that cigarette advertising is targeted at the youth population," he says. What's more, Gary Giovano of the Centers for Disease Control notes that price increases may have affected many of the poorest teenagers. "Surveys indicate that only about 5% of black teenagers now smoke compared to 21% of whites," he says.

Indeed, advocates of a $2 tax hike claim it would dramatically cut usage in the teenage years, when most habitual smokers acquire the habit. "Canadians have shown what a big price increase can do to teenage smoking," says Myers. "It's time to follow their example."GENE KORETZ